Chapter 9

International Strategy

Robert E. Hoskisson
Michael A. Hitt
R. Duane Ireland

©2004 by South-Western/Thomson Learning 1

The Strategic Management Process
Chapter 1
Strategic Chapter 2
Introduction to
Thinking Strategic Leadership
Strategic Management

Chapter 3 Chapter 4
Strategic Strategic Intent
The External The Internal
Analysis Environment Organization
Strategic Mission

Chapter 5 Chapter 6
Chapter 7
Business-Level Competitive Rivalry and
Creating Strategy Competitive Dynamics
Corporate-Level Strategy
Competitive
Advantage Chapter 8
Chapter 9 Chapter 10
Acquisitions
Acquisition and
and
International Strategy Cooperative Strategy
Restructuring Strategies

Monitoring
And Creating Chapter 11 Chapter 12
Entrepreneurial Corporate Governance Strategic Entrepreneurship
2
Opportunities
Discussion Questions
What are the issues that need to be
Click
Here 1.
addressed when considering
international diversification decisions?
Click
Here 2. What opportunities create incentives to
pursue international diversification
strategies?
Click
Here 3. How do domestic industry attributes
shape international business level-
strategy formulation?
Click
Here More discussion questions 3
Discussion Questions (cont.)
Click
Here 4. What two strategic emphases have
created opportunities for different
international corporate-level strategies
and structures?
Click
Here 5. What other significant trends have been
influencing the strategies?

Click
Here More discussion questions 4
Discussion Questions (cont.)
Click
Here
6. Which international entry modes are least
risky and why? Which international entry
modes provide the best control over
operations? Under what situations do you
use one mode versus another?
7. What are the potential overall benefits and
Click
risks of international diversification?
Here
8. Are there managerial limits to international
diversification?
Click
Here

5
Discussion Question 1

What are the issues that need to be

addressed when considering
international diversification
decisions?

6
 Opportunities and Outcomes of
International Strategy
Identify International Explore Resources Use Core
Opportunities and Capabilities Competence
International
Strategies Modes of Entry

Increased market International Exporting

size business-level
strategy Licensing
Return on
investment Multidomestic Strategic
strategy alliances
Economies of
scale and learning Global strategy Acquisitions

Advantage in Transnational Establishment of

location strategy a new subsidiary
7
 Opportunities and Outcomes of
International Strategy: Continued
Use Core Strategic
Competence Competitiveness
Outcomes
Modes of Entry Management
problems and Better
Exporting risk performance
Licensing
Strategic
alliances
Innovation
Acquisitions
Management Click
Return to
Establishment of problems and
Here

Discussion
a new subsidiary risk Questions
8
Discussion Question 2

What opportunities create

incentives to pursue international
diversification strategies?

9
Motivations for International
Expansion
 Increase Market Share
– domestic market may lack the size to support
efficient scale manufacturing facilities
 Return on Investment
– large investment projects may require global
markets to justify the capital outlays
– weak patent protection in some countries
implies that firms should expand overseas
rapidly in order to preempt imitators

10
Motivations for International
Expansion Return to Discussion Questions
Click
Here

 Economies of Scale or Learning

– expanding size or scope of markets helps to
achieve economies of scale in manufacturing as
well as marketing, R & D or distribution
– can spread costs over a larger sales’ base
– increase profit per unit
 Location Advantages
– low cost markets may aid in developing competitive
advantage
– may achieve better access to:

• Raw materials • Key customers

• Lower cost labor • Energy 11
Discussion Question 3

How do domestic industry attributes

shape international business level-
strategy formulation?

12
International Business-Level Strategy:
Determinants of National Advantage
Factors of
production

Firm strategy,
Demand
structure, and
conditions
rivalry

Related and
supporting
industries
13
International Business-Level Strategy:
Determinants of National Advantage
 Factors of production: the inputs necessary
to compete in any industry
– labor
– land
– natural resources
– capital
– infrastructure
– basic factors include natural and labor
resources
– advanced factors include digital communication
systems and educated workforce 14
International Business-Level Strategy:
Determinants of National Advantage
 Demand conditions: characterized by the
nature and size of buyers’ needs in the
home market for the industry’s goods or
services
– size of market segment can lead to scale-
efficient facilities
– efficiency can lead to domination of the
industry in other countries
– specialized demand may create opportunities
beyond national boundaries
15
International Business-Level Strategy:
Determinants of National Advantage
 Related and supporting industries:
supporting services, facilities, suppliers
and so on
– support in design
– support in distribution
– related industries as suppliers and buyers

16
International Business-Level Strategy:
Determinants of National Advantage
 Firm strategy, structure, and rivalry: the
pattern of strategy, structure, and rivalry
among firms
– common technical training
– methodological product and process
improvement
– cooperative and competitive systems

Click
Here Return to Discussion Questions 17
Discussion Question 4

What two strategic emphases have

created opportunities for the three
different international corporate-
level strategies and structures?

18
International Corporate-Level
Strategy
Need for Global Integration
High

Global Transnational
strategy strategy

Multidomestic
strategy

Low

Low High
Need for Local Responsiveness 19
International Corporate-Level
Strategy
 Type of corporate strategy selected will
have an impact on the selection and
implementation of the business-level
strategies
 Some corporate strategies provide
individual country units with flexibility to
choose their own strategies
 Others dictate business-level strategies
from the home office and coordinate
resource sharing across units
20
 International Corporate-Level
Strategy: Multidomestic Strategy
• Strategy and operating decisions are
Multidomestic decentralized to strategic business units (SBU)
strategy in each country
• Products and services are tailored to local
markets
• Business units in one country are independent
of each other
• Assumes markets differ by country or regions
• Focus on competition in each market
• Prominent strategy among European firms
due to broad variety of cultures and markets
in Europe

21
 Worldwide Geographic Area
Structure: Multidomestic Strategy
• product characteristics
United
Asia tailored to local
States
preferences
• isolation from global
competition
Latin Multinational – establish protected
Europe
America Headquarters market positions
–compete in industry
segments most
Middle affected by
Australia East/ differences among
Africa local countries
22
International Corporate-Level
Strategy: Global Strategy
• Products are standardized across national
Global markets
strategy • Decisions regarding business-level strategies
are centralized in the home office
• Strategic business units (SBU) are assumed to
be interdependent
• Emphasizes economies of scale
• Often lacks responsiveness to local markets
• Requires resource sharing and coordination
across borders (which also makes it difficult
to manage)
• Historically prominent among Japanese firms

23
 Worldwide Product Divisional
Structure: Global Strategy
Worldwide Worldwide • standardized products
Products Products across countries
Division Division
• economies of scope
and scale
• outsource some
Worldwide Global Worldwide primary or support
Products Corporate Products
Division Division activities to the
Headquarters
world’s best providers
• decision-making
Worldwide Worldwide authority centralized
Products Products in worldwide division
Division Division
headquarters
24
 International Corporate-Level
Strategy: Transnational Strategy
• Seeks to achieve both global efficiency and
Transnational local responsiveness
strategy • Difficult to achieve because of simultaneous
requirements
− strong central control and coordination to
achieve efficiency
− decentralization to achieve local market
responsiveness
• Must pursue organizational learning to
achieve competitive advantage

25
Using the Combination Structure:
Transnational Strategy
 The combination structure has
characteristics and mechanisms that
result in an emphasis on both geographic
and product structures
– local responsiveness (multidomestic strategy)
– global efficiency (global strategy)

Click
Here Return to Discussion Questions
26
Discussion Question 5

What other significant trends have

been influencing the strategies?

27
Environmental Trends
 Liability of Foreignness
– security risks
– tighter immigration policies
 Regionalization
– location can affect value creation
– may wish to narrow focus to a particular
region of the world
– enter regional markets sequentially,
beginning with the most familiar market
Click
Here Return to Discussion Questions 28
Discussion Question 6
Which international entry modes are
least risky and why? Which
international entry modes provide the
best control over operations? Under
what situations do you use one mode
versus another?

29
 Global Market Entry: Choice of
Entry Mode Return to Discussion Questions
Click
Here

Type of Entry Characteristics

Exporting High cost, low control
Licensing Low cost, low risk, little control, low
returns
Strategic alliances Shared costs, shared resources, shared
risks, problems of integration
Acquisition Quick access to new market, high cost,
complex negotiations, problems of
merging with domestic operations
New wholly owned Complex, often costly, time consuming,
subsidiary high risk, maximum control, potential
30
above-average returns
Discussion Question 7

What are the potential overall

benefits and risks of international
diversification?

31
Value Creation Outcomes: Returns
 International diversification and returns:
firm expands the sales of its goods or services
across the borders of global regions and countries
into different geographic locations or markets
– may increase a firm’s returns
– such firms usually achieve the most positive
stock returns
– firm may achieve economies of scale and
experience, location advantages, increased
market size and opportunity to stabilize returns

32
Value Creation Outcomes: Innovation
 International diversification and innovation:
firm expands the sales of its goods or services
across the borders of global regions and countries
into different geographic locations or markets
– potentially greater returns on innovations (larger
markets)
– generate additional resources for investment in
innovation
– exposed to new products and processes in
international markets, generates additional
knowledge leading to innovations
33
Risks in an International
Environment

Political Risks Economic Risks

Political risks include

• instability in national governments
• war, both civil and international
• potential nationalization of a firm’s resources

34
Risks in an International
Environment Return to Discussion Questions
Click
Here

Political Risks Economic Risks

Economic risks are interdependent with political

risks and include
• differences and fluctuations in the value of different
currencies
• differences in prevailing wage rates
• difficulties in enforcing property rights
• unemployment 35
Discussion Question 8

Are there managerial limits to

international diversification?

36
Limits to International Expansion:
Management Problems
 Cost of coordination across diverse
geographical business units
 Institutional and cultural barriers
 Understanding strategic intent of
competitors
 The overall complexity of competition

37